In the Food & Beverages (F&B), tier II players are rising fast and are expected to control 40 percent of the FMCG segment by 2019, rating agency Crisil says.
In the last six years, tier II FMCG players have increased their share in the domestic F&B market to 30 percent from the earlier 20 percent, and grown at nearly twice the pace of tier I players, according to a CRISIL report.
"We have analysed about 125 FMCG players in F&B, including over 100 who make up two-thirds of the tier II bucket. Based on this study, we forecast that the bucket will sustain strong growth in the next five years, leading to a further increase in their share to 40 per cent," it said.
At Rs 1.2 trillion, F&B is over 50 per cent of the FMCG market. The report further said that smaller, mostly regional, players have outgrown the FMCG biggies, including Nestle, ITC and Britannia, adding that this phenomenon has been witnessed only in the F&B segment.
However, even if the positive catalyst will continue for the tier II cities on the business side, the main challenge will be the funding, it said.
"We estimate they will require at least Rs 160-180 billion more for achieving this target," it said.
The positive conditions that contributed to Tier-II players’ growth in the past were of structural nature. "This can also attract several new entrants. We therefore estimate that this bucket is likely to continue growing at least 75-80 percent faster than tier I going forward, provided the players secure the necessary capital," it said.